WASHINGTON (5/29/13, UPDATED 3:29 p.m. ET)--A Financial Accounting Standards Board (FASB) proposal that would change the methodology for recognizing credit impairment would be detrimental to the credit union system and could have serious, unintended consequences for borrowers and the economy, the Credit Union National Association warned Wednesday and urged the accounting board to abandon the plan.
The FASB proposal is "the most critical regulatory concern credit unions have faced in quite some time, including rules or proposals that have been issued under the Dodd-Frank Wall Street Reform and Consumer Protection Act," CUNA President/CEO Bill Cheney underscored in a letter to the board.
The FASB has proposed an accounting standards update regarding financial reporting of expected credit losses on loans and other financial assets held by financial institutions, including credit unions. The proposed model would utilize a single "expected loss" measurement for the recognition of credit losses. It would replace the multiple existing impairment models in U.S. generally accepted accounting principles that generally use an "incurred loss" approach.
Under the proposal, the reporting entity would be required to estimate the cash flows that it does not expect to collect, using all available information, including historical experience and forecasts about the future.
CUNA seriously questions whether the proposal will achieve the FASB's stated objectives and also questions how the proposal will be reconciled with the proposed approach from the International Accounting Standards Board, Cheney wrote.
"Some have concluded that the current methodology for recognizing credit losses did not identify such losses at the largest financial institutions soon enough leading up to and during the financial crisis. However, there is no evidence that the current system is not working well for smaller institutions, including credit unions," the CUNA leader said.
"After reviewing the proposal in detail with our members, accountants, and others, CUNA strongly opposes the proposal and urges the FASB not to proceed with the accounting standards update as issued for comments.
If dropping the proposal is not feasible, CUNA urges the FASB to work with the credit union system to develop credit loss reporting standards for credit unions, separate from those for publicly traded companies, that will reflect the unique business model of credit unions while ensuring credit loss issues are reported appropriately.